Built to Last? The Changing Role of Ocean Transportation Intermediaries: Disintermediation and Reintermediation

Abstract

Introduction Ongoing changes in the maritime container shipping industry and the introduction of new technologies are dramatically changing the role of the ocean transportation intermediary (OTI’s). Full service intermediaries can secure space with ocean carriers, offer customer transloading, consolidation, trucking, freight forwarding, customs brokerage and a range of other services that are crucial to the movement of goods. In high volume markets such as the Transpacific trade lane, the role of intermediary has grown as the liner shipping firms utilize mergers, alliances, vessel sharing agreements and mergers in an effort to remain financially viable. Approximately 42% of Transpacific moves are handled by NVOCCs at the time of this writing (Mongelluzzo, 2016). Delayed vessel calls, poorly aligned chassis supply and changing carrier alliances have provided an opening to OTI’s to sell themselves as supply chain experts who help their shipper customers navigate the complexities of international shipping by providing more value added services than the liner shipping operators (Landon, 2015). As the need for skilled intermediaries has grown, new online platforms from advanced technology firms have the potential for disintermediation- ‘cutting out the middle man’ from transactions for a variety of core ocean freight processes like procurement, forwarding, and supply chain visibility (Steele, 2009). This has long been predicted since the advent of the Internet but has only now reached the critical mass of advanced technology programming and large scale equity investment that will lead to a similar software revolution in logistics as has transformed other aspects of the economy. The advent of new freight technologies will most likely lead to the demise of many OTI’s who are not scaled to be able to utilize the software but also possibly create the formation of new skilled intermediaries (i.e. reintermediation) that create markets and enhance value to customers through innovations to produce customized lines of supply in an increasingly complex global distribution network. For example, a data aggregator firm such as Haven http://haveninc.com/ reintermediates freight logistics as a ‘fare aggregator’ similar to services set up for the passenger industry such as Kayak (https://www.kayak.com/). The purpose of this study is to look at how the changes outlined above are impacting ocean freight intermediaries in the high volume Transpacific market through a study of OTI’s; in particular the operations in the Chicago, Illinois transportation hub of the United States. A number of intermediaries were created in the Chicago area over the last 30 years to take advantage of changes in U.S. regulation of ocean transportation as they related to less than container load (LCL) shipments. While intermediaries are commonplace in Europe and port cities, the growth of intermodal movements, particularly to and from Asia into U.S. inland hubs such as Chicago resulted in the creation of many intermediaries to service the trade. Over the last decade there has been a winnowing out of these firms. Some have left the industry, some have merged or been acquired by larger firms and some have remained in business largely intact. We will look at overall statistics on firms in the United States area from data provided by the Federal Maritime Commission. Evidence suggests that there is a constant flow of new entrants into the marketplace as well as firms that have achieved some longevity. In this paper we demonstrate that in the US, OTI firms locate in clusters, near to air and ocean ports, and identify the clusters via analytics. Why is this so, if advanced IT and technology, which are mostly location independent, are driving the disintermediation and reintermediation of the business? We suggest that while technology may be important there is another factor in terms of expertise that intermediaries provide that is not so well captured by technology today. What is necessary for OTI firms to survive in the new era of shipping may be more than technology, despite how new technologies will change their role in the maritime industry. Section 2 provides some background on freight forwarding and the OTIs. Section 3 discusses two types, Ocean Freight Forwarders (OFF) and Non-Vessel Owning Common Carriers (NVOCC) and major players and introduces their technology positions. Section 4 covers the economic geography of the OTIs registered with the US Federal Maritime Commission (FMC), and uses analytic techniques to identify geographical clusters, which seem to be in ocean and airport areas. Section 5 remarks on the Chicago area as an example port area cluster, and Section 6 draws some conclusions regarding the persistence of these clusters in port areas despite technology.